The Bloomberg China-US Equity Index of the most-traded
Chinese shares in the U.S. advanced 0.4 percent to 92.29
yesterday. LDK Solar Co. and Yingli Green Energy Holding Co. (YGE)
jumped, while New Oriental Education & Technology Group surged a
second day after Carson Block, the short seller that queried
their units’ accounting, said it’s now too hard to short Chinese
U.S.-listed stocks. Melco Crown Entertainment Ltd. (MPEL) traded at a
discount to Hong Kong shares for the first time in nine days.

S&P’s positive outlook comes as China shows signs of
emerging from a seven-quarter slowdown, with sectors from
manufacturing to retail sales indicating a pickup since October.
Chinese policy makers will continue to target “stable growth”
in 2013, the official Xinhua News Agency reported yesterday,
citing Zhang Liqun, a researcher with the State Council’s
Development Research Center.

“The S&P statement ties in with our view that China’s
economic situation has stabilized,” Sam Mahtani, who oversees
about $5 billion as director of emerging markets at F&C Asset
Management Plc in London, said by phone yesterday. “The Chinese
economy is clearly at an important inflection point. We expect
from this quarter onwards we are going to see more signs of
economic recovery in China.”

Government Protection

The iShares FTSE China 25 Index Fund, the biggest Chinese
exchange-traded fund in the U.S., was little changed at $36.85
after falling to a one-week low the previous day. The Standard &
Poor’s 500 Index increased 0.4 percent to 1,415.95 amid optimism
U.S. lawmakers will reach an agreement over the nation’s budget.

New Oriental, China’s largest private-education provider,
surged 8.3 percent to a four-month high of $20.96. The shares
have rebounded 43 percent since July 17, a day before short-seller Muddy Waters issued a report questioning New Oriental’s
school network and accounting practices.

Muddy Waters’ Block said he lost interest in betting
against Chinese stocks and speculated the government is
protecting fraudulent companies in an interview on Bloomberg
Television Nov. 27.

‘Big Relief’

“It would be a very big relief for New Oriental investors
to see Muddy Waters getting out of China,” Ella Ji, an analyst
at Oppenheimer & Co. in New York who rates the shares
outperform, said by phone. “A big overhang just removed itself.
This shows that very likely Muddy Waters doesn’t really have any
more evidence.”

New Oriental said Sept. 30 that a probe into Muddy Waters’s
allegations against the company showed no fraud. A day later,
Block said he was “more convinced than ever that New Oriental
is materially misleading investors” based on the education
company’s information.

The Bloomberg Chinese Reverse Mergers Index, which tracks a
basket of companies that gained U.S. listings after buying firms
that already trade, added 2 percent to 75.33, the highest since
May 11.

Qihoo 360 Technology Co. (QIHU), which develops anti-virus and
desktop software, surged 5.5 percent to $25.14, the highest
level since Sept. 19. The company, which started a new search
engine to challenge that of Baidu Inc. (BIDU), introduced a dedicated
search feature that aggregates songs from third-party sites,
TechInAsia reported yesterday.

LDK Surges

LDK Solar Co., the world’s second-largest maker of wafers,
jumped 10 percent to $1.18, the strongest close in two months.
Yingli, China’s fourth-largest solar-panel producer based in
Baoding city in the Hebei province, surged 6.2 percent to a
three-week high of $1.72. Jiangsu-based Suntech Power Holdings
Ltd., the world’s largest solar-panel maker, gained 2.3 percent
to 91 cents, extending a rally to an eighth day.

Melco Crown, a casino operator in Macau, retreated 1
percent to $15.23, the steepest decline in two weeks. The
company’s ADRs, each representing three underlying shares,
traded 0.1 percent below its Hong Kong-listed stock, the first
discount since Nov. 16.

Youku’s Earnings

Youku Tudou Inc. (YOKU) fell 1.1 percent to $16.70 in after-hours
trading in New York after the company that operates China’s
most-popular video websites reported a third-quarter net loss of
91.5 million yuan ($14.6 million), above the $63.3 million yuan
net loss estimate of five analysts surveyed by Bloomberg.
Trading volume in options on Youku rose yesterday to 6.3 times
four-week average level before the company reported earnings.

Thirty-day volatility in the Bloomberg China-US gauge
dropped to 19.59 yesterday, from 19.67 on Nov. 28 and compared
with this year’s average of 22.5.